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Under increased scrutiny, hospitals do more “observing,” at a cost to patients

It was upsetting enough when Nancy Renshaw found her 89-year-old father-in-law, Charles Renshaw, on the floor of his apartment, confused, cold, and in pain from an apparent fall.

Then came this shocker: After more than 3 days at Norwich’s Backus Hospital, as Renshaw was about to be discharged, a nurse told his family that he had never technically been admitted as an in-patient. He had been in the hospital under “observation” status, though he’d been sleeping in a hospital bed, wearing a hospital gown, and eating hospital food.

For the Renshaws, that ended up being a nearly $10,000 decision. And it’s one being made with increasing frequency by hospitals across the country in treating elderly Medicare patients, as hospitals opt against fully admitting some elderly patients and instead treating them in a kind of limbo status.

Many patients never know the difference. So why does it matter? Because of an obscure Medicare rule that requires patients to have a three-day in-patient hospital stay before the federal health care program will cover the cost of any skilled nursing care needed after a patient is discharged.

Rep. Joe Courtney: ‘It’s kind of crazy’

In the case of Charles Renshaw, although doctors said he was okay to leave the hospital after a few days, everyone agreed he was in no shape to go back home alone. He was still weak and needed of round-the-clock supervision. But because he had never been technically admitted to the hospital, the Renshaws were on the hook for the $360 per day cost of putting their father in a nearby convalescent home until he was strong enough to be on his own again.

“I hit the roof,” Nancy Renshaw said of her reaction to being told he had never been admitted. It never occurred to her that he had not been admitted. “I said, ‘He’s been here 3 ½ days.’ … He had heart monitors on, he had IVs in him, they were treating him.”

This kind of situation used to be fairly rare, said Judy Stein, executive director of the Center for Medicare Advocacy, a national education and advocacy group that’s headquartered in Mansfield Center.

“But in the last year or two, it’s really increased tremendously in terms of the number of [observation] cases and the length of these observation stays,” Stein said. “We have heard from people in 22 states just over the course of the last 6 or 8 months, including many from Connecticut.”

At the local hospital in Windham, for example, the number of patients treated under observation status jumped 25 percent from 2008 to 2009, Stein said.

Nationally, data from the Centers for Medicare and Medicaid Services (CMS) confirm an upward trend. The number of Medicare observation claims climbed from 828,000 in 2006 to 1.13 million last year. And the number of “observation” hospital visits lasting more than 48 hours more than tripled, from about 26,000 cases in 2006 to more than 83,000 cases this year.

Federal Medicaid officials say the forces driving this new phenomenon are not entirely clear yet.

“It’s something we’re looking at,” said Ellen Griffith, a CMS spokeswoman. “We are gathering information, but we do not have right now a full picture of why it’s happening.”

But some say the culprit is clear. To control costs and rein in waste, Congress called on CMS several years ago to hire contractors to perform audits of hospitals. If it looks like they are admitting patients who don’t truly need it, they can run into trouble with the agency.

Stein said the increase in observation stays is related to this crackdown on “overutilization” of hospital services. “Hospitals are afraid of getting dinged or reviewed by CMS if they have too many admissions or too many readmissions,” she said. If they never technically admit a patient, and instead categorize that person as under observation, a hospital can potentially lessen the chances of federal scrutiny, she said.

Colleen D. Sullivan, the case manager at Backus Hospital, said that although she didn’t have specific numbers, Backus has definitely increased its use of observation status in recent years. “What’s driving it is our attempt and our need to maintain compliance with Medicare,” she said, citing the audits. Medicare, she added, is “very prescriptive about what constitutes an in-patient level of care and what doesn’t.”

Stephen Frayne, a lobbyist for the Connecticut Hospital Association, said he was not aware of an increase in observation hospital rates for the elderly. But hospitals have been very aware of the Medicare audits and regulations.

“If the patient doesn’t legitimately fit the sick enough category to [meet] the in-patient definition, then the care isn’t paid for by Medicare,” Frayne said. And “knowingly admitting people that you shouldn’t be admitting is a violation of rules, and that would be fraud.”

“Physicians and the nurses are trying to figure out the best way to take care of folks, and they’re also trying to figure this out in an environment where everyone’s looking to not pay for the care that’s being delivered,” Frayne said. “We have to navigate both those waters … So if you are seeing folks being more cautious in terms of making sure every ‘i’ is dotted and every ‘t’ is crossed, it’s consistent with the direction Medicare wants to go. We’re doing what they ask.”

No matter what the cause, the repercussions are clear, with this seemingly technical categorization creating serious health and financial repercussions for the families and patients involved.

“This is really a trend that’s unacceptable,” said Rep. Joe Courtney, D-2nd District, who dug into the issue after being approached by Nancy Renshaw. “We’ve heard stories of people who were categorized under observation for longer than a week. It’s kind of crazy.”

Courtney recently introduced legislation that would amend the Medicare law to count a patient’s time in the hospital on “observation” status towards the three-day hospital stay requirement that triggers Medicare coverage for post-hospital nursing care. “The bill just tries to, in the most direct fashion, protect people from this no-man’s land they find themselves in,” he said.

While this situation may have started as a cost-savings measure by Medicare, Courtney said, the unintended consequences may increase, not decrease, medical costs.

He fears it will create a “revolving door” of Medicare patients returning to a hospital if they can’t afford post-discharge assistance. “If you are somebody who suddenly finds themselves not eligible for the rehabilitative care… what do you do?” he asked. “Go home and hope for the best? And the likely end up readmitted to the hospital?”

He and others said this trend seemed to start well before the passage of health care reform, but went mostly unnoticed. There’s nothing in the overhaul measure to specifically address this situation, although Stein said the law’s incentives to improve the quality of care could reduce overall costs and eventually lessen the pressures on agencies like Medicare.

But that kind of fundamental shift is a long way off and by no means guaranteed, which is why Stein and others say that a quicker fix is needed.

Nancy Renshaw said that when her father-in-law was set to leave the hospital, “he just needed rest and healing.” Instead of being able to focus on him, she had to deal with the “horrible” realization that she would have to pay out of pocket for his follow-up care–$5,000 for two weeks of care at a convalescent home and another $4,200 for home health care services.

“My father-in-law’s story is over and done with,” she said, noting that he has recovered and is back in his apartment. “But this should not happen to anyone else.”

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